Yahoo Inc. has beefed up its talks with Google Inc. as it looks for alternatives to Microsoft Corp.'s unsolicited US$44.6 billion takeover bid, according to a report in the Los Angeles Times.
And in an e-mail to employees filed with the U.S. Securities and Exchange Commission, Yahoo CEO Jerry Yang told employees that the board was "thoughtfully evaluating a wide range of potential strategic alternatives in what is a complex and evolving landscape. And we've hired top advisers to assist through the process." According to the Times, Yahoo has hired investment banks Goldman Sachs & Co. and Lehman Brothers Inc. to evaluate its options.
Google said it had no comment on the Times story. Yahoo could not be reached for comment.
A source familiar with the deal told the Times, "Jerry is as motivated as hell to try anything he can. Google is hypercompetitive, and it wants to do anything it can, anytime it can, to stop Microsoft from getting one foot in the door."
According to the Times, former executives said Yahoo has been interested in turning over its search advertising business to Google. That would mean that Google would place paid ads on Yahoo search pages and the companies would then share the revenue generated from those ads. It's a move that would increase revenue and cut costs for Yahoo.
By combining the assets of Microsoft and Yahoo, Microsoft is set to make a run at Google's share of the online advertising market. For its part, Google is doing what it can to challenge the deal on antitrust issues. Analysts have said Google can't bid for Yahoo outright because such a deal wouldn't pass regulatory muster.
Meanwhile, in a report, Framingham, Mass.-based research firm IDC said Microsoft's proposed takeover of Yahoo might be the right combination to take on a heavyweight like Google.
"IDC's data on online search behavior and advertising revenue shows that a Microsoft-Yahoo merger creates a credible challenge to Google's Web hegemony," according to the report. "Together, Yahoo and Microsoft command 22.7% of the online advertising market share [in the U.S.], in contrast to Google's 32.5%." IDC is owned by International Data Group, which is also the parent company of Computerworld.
Regarding display ads, for example, adding Microsoft's share will make Yahoo's position as the market leader hard to beat, the report said. In addition, IDC said the takeover of Yahoo could be bolstered by Microsoft's planned $1.2 billion acquisition of Norwegian enterprise search firm Fast Search & Transfer ASA (FAST).
"If we consider a Microsoft-Yahoo-FAST combination, Microsoft is largely a business-oriented software vendor, [so] it makes sense for them to get into the business of selling infrastructure software or middleware to businesses that want to monetize their audience and their content," the report said.
However, even a Microsoft-Yahoo merger couldn't compete with Google in online video, IDC conceded.
Further, IDC said Microsoft and Yahoo would have a better chance of taking on Google together than they would separately.
"Without combining forces, Microsoft and Yahoo would only catch up to Google in the long run [five plus years], and only if the stars aligned in the right way. With a merger, that goal is much closer," the report said.